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06-5525-cv
IN THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
IN RE DDAVP DIRECT PURCHASER ANTITRUST LITIGATION
ON APPEAL FROM THE UNITED STATES DISTRICT COURTFOR THE SOUTHERN DISTRICT OF NEW YORK
BRIEF FOR THE UNITED STATES AND FEDERAL TRADE COMMISSIONAS AMICI CURIAE SUPPORTING PLAINTIFFS-APPELLANTS
WILLIAM BLUMENTHAL THOMAS O. BARNETT General Counsel Assistant Attorney General Federal Trade Commission Washington, D.C. 20580 GERALD F. MASOUDI
Deputy Assistant Attorney General
ROBERT B. NICHOLSONJAMES J. FREDRICKS Attorneys U.S. Department of Justice 950 Pennsylvania Avenue NW, Room 3224 Washington, D.C. 20530 (202) 307-1403
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TABLE OF CONTENTS
TABLE OF AUTHORITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
STATEMENT OF INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
QUESTION PRESENTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
I. THE PLAINTIFFS HAVE ANTITRUST STANDING . . . . . . . . . . . . . 5
A. Antitrust Standing Is Well Established for Direct Purchasers Seeking Overcharge Damages Caused by an Antitrust Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
B. Direct Purchasers Are Not Deprived of Standing Merely Because Their Monopoly Maintenance Claim Rests On Walker Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
CERTIFICATION OF COMPLIANCE WITH TYPE VOLUME LIMITS, TYPE FACE & STYLE REQUIREMENTS, AND ANTI-VIRUS SCAN REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 18
CERTIFICATE OF SERVICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
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TABLE OF AUTHORITIES
CASES
Addyston Pipe & Steel Co. v. United States, 175 U.S. 211 (1899) . . . . . . . . . . . 7
Associated Gen. Contractors of Cal., Inc. v. California State Council of Carpenters, 459 U.S. 519 (1983) . . . . . . . 8, 9
Balaklaw v. Lovell, 14 F.3d 793 (2d Cir. 1994) . . . . . . . . . . . . . . . . . . . . . . . 9, 10
Blue Shield of Virginia v. McCready, 457 U.S. 465 (1982) . . . . . . . . . . . 8, 9, 14
Brunswick Corp. v. Pueblo Bowl-O-Mat, 429 U.S. 477 (1977) . . . . . . . . . . . . . 8
Carrot Components Corp. v. Thomas & Betts Corp., 229 U.S.P.Q. 61 (D.N.J. 1986) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Chattanooga Foundry & Pipe Works v. Atlanta, 203 U.S. 390 (1906) . . . . . . . . 7
In re Ciprofloxacin Hydrochloride Antitrust Litigation, 363 F. Supp. 2d 514 (E.D.N.Y. 2005) . . . . . . . . . . . . . . . . . . . . 11, 12, 15
Dippin’ Dots, Inc. v. Mosey, 476 F.3d 1337 (Fed. Cir. 2007) . . . . . . . . . . . . . . 16
E & L Consulting, Ltd. v. Doman Indus. Ltd., 472 F.3d 23 (2d Cir. 2006) . . . . . 2
Edward Katzinger Co. v. Chicago Metallic Manufacturing Co.,329 U.S. 394 (1947) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Ferring B.V. v. Barr Labs., Inc., No. 7:02-CV-9851, 2005 WL 437981 (S.D.N.Y. Feb. 7, 2005), aff'd, 437 F.3d 1181 (Fed. Cir.), cert. denied, 127 S. Ct. 515 (2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Food Mach. & Chem. Corp. v. Walker Process Equip., Inc., 335 F.2d 315 (7th Cir. 1964) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
G.K.A. Beverage Corp. v. Honickman, 55 F.3d 762 (2d Cir. 1995) . . . . . . . . . . 9
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Georgia v. Evans, 316 U.S. 159 (1942) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Hydril Co. v. Grant Prideco LP, 474 F.3d 1344 (Fed. Cir. 2007) . . . . . . . . . . . 14
Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977) . . . . . . . . . . . . . . . . . . . . . . . . 9
Indium Corp. of America v. Semi-Alloys Inc., 566 F. Supp. 1344 (N.D.N.Y. 1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Indium Corp. of America v. Semi-Alloys Inc., 591 F. Supp. 608 (N.D.N.Y. 1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Kansas v. Utilicorp United Inc., 497 U.S. 199 (1990) . . . . . . . . . . . . . . . . . . . . 9
Lear, Inc. v. Adkins, 395 U.S. 653 (1969) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Loeb v. Eastman Kodak, Co., 183 F. 704 (3d Cir. 1910) . . . . . . . . . . . . . . . . . . . 9
Molecular Diagnostics Labs. v. Hoffmann-La Roche Inc.,402 F. Supp. 2d 276 (D.D.C. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Paycom Billing Servs., Inc. v. Mastercard Int’l, Inc., 467 F.3d 283 (2d Cir. 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Pfizer Inc. v. Gov’t of India, 434 U.S. 308 (1978) . . . . . . . . . . . . . . . . 6, 7, 8, 16
Reiter v. Sonotone Corp., 442 U.S. 330 (1979) . . . . . . . . . . . . . . . . . . . . . . . 8, 17
In re Remeron Antitrust Litigation, 335 F. Supp. 2d 522 (D.N.J. 2004) . . . 12, 13
Southwest Suburban Bd. of Realtors, Inc. v. Beverly Area Planning Ass’n, 830 F.2d 1374 (7th Cir. 1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
United States v. American Bell Tel. Co., 128 U.S. 315 (1888) . . . . . . . . . . . . . 14
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Unitherm Food Systems, Inc. v. Swift Eckrich, Inc., 375 F.3d 1341(Fed. Cir. 2004), rev'd on other grounds, 546 U.S. 394 (2006) . . . . . . . 12
Walker Process Equip. Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172 (1965) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 12, 15, 16, 17
STATUTES & RULES
Fed. R. App. P.:
Rule 29(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Rule 29(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Rule 32(a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Rule 32(a)(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Rule 32(a)(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Rule 32(a)(7)(B)(iii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Fed. R. Civ. P.:
Rule 9(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Rule 12(b)(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2d Cir. R. 32(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2, Sherman Act, 15 U.S.C. § 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 4, Clayton Act, 15 U.S.C. § 15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim
15 U.S.C. § 12(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
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MISCELLANEOUS
2 Philip E. Areeda & Herbert Hovenkamp, Antitrust Law (2d ed. 2000) . . . . . . 6
2 Philip E. Areeda & Donald F. Turner, Antitrust Law (1978) . . . . . . . . . . . . . . 6
Earl E. Pollock, Standing to Sue, Remoteness of Injury, and the Passing-On Doctrine, 32 Antitrust L.J. 5, 7 (1966) . . . . . . . . . . . 6
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STATEMENT OF INTEREST
The United States and the Federal Trade Commission have the primary
responsibility for enforcing the federal antitrust laws and so have a significant
interest in both the substantive and procedural aspects of those laws. This interest
includes the proper interpretation of section 4 of the Clayton Act, 15 U.S.C. § 15,
which authorizes civil antitrust suits by “any person who shall be injured in his
business or property” by an antitrust violation. This case presents a significant
issue of first impression in the courts of appeals: whether section 4 authorizes
direct purchasers to sue to recover monopoly overcharge damages resulting from
maintenance of a monopoly by enforcement of a fraudulently obtained patent. The
district court erroneously held that section 4 does not permit such a suit. The
United States and the Federal Trade Commission disagree with this ruling and ask
the Court not to affirm it. We express no views on the ultimate merits or any other
issues in this case. We file pursuant to the first sentence of Federal Rule of
Appellate Procedure 29(a).
1 Since the ruling under review is the grant of a motion to dismiss underFederal Rule of Civil Procedure 12(b)(6), the complaint’s factual allegations areaccepted as true and all inferences therefrom are drawn in plaintiffs-appellants’favor for present purposes. See E& L Consulting, Ltd. v. Doman Indus. Ltd., 472F.3d 23, 28 (2d Cir. 2006).
2 JA refers to the Joint Appendix, and SA to the Special Appendix.
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QUESTION PRESENTED
Whether section 4 of the Clayton Act allows direct purchasers of a patented
product to recover damages from overcharges resulting from a monopoly
maintained by the enforcement of a patent obtained through intentional fraud on
the U.S. Patent and Trademark Office.
STATEMENT
1. Plaintiffs-appellants Meijer, Inc., and others in this putative class action
purchased tablets of the anti-diuretic desmopressin acetate under the brand name
DDAVP directly from the defendants, Ferring B.V., Ferring Pharmaceuticals, Inc.,
and Aventis Pharmaceuticals.1 Consol. Am. Class Action Compl. ¶¶ 2, 9-11, 15
(Am. Compl.) (JA 1-4).2 The plaintiffs charge that the defendants maintained a
monopoly in the United States market for desmopressin acetate tablets in violation
of section 2 of the Sherman Act, 15 U.S.C. § 2, and that, as a result, purchasers
paid supracompetitive prices for the drug. Am. Compl. ¶¶ 1, 4 (JA 1-2).
Specifically, the plaintiffs allege that the defendants enforced a “fraudulently
3 The patent is U.S. Patent No. 5,407,398 (the ‘398 patent). The allegedfraud rests on Ferring’s failure to disclose to the U.S. Patent and Trademark Officeits past relationships with several persons who submitted declarations supportingFerring’s contention that a prior patent did not anticipate the invention. Am.Compl. ¶¶ 50-74 (JA 15-20). In an earlier patent infringement suit brought bydefendants here against a generic drug maker, that failure was held to be“inequitable conduct” rendering the patent unenforceable. Ferring B.V. v. BarrLabs., Inc., No. 7:02-CV-9851, 2005 WL 437981 (S.D.N.Y. Feb. 7, 2005)(Brieant, J.), aff’d, 437 F.3d 1181 (Fed. Cir.), cert. denied, 127 S. Ct. 515 (2006).
4 The plaintiffs also allege that the enforcement of the patent eliminatedcompetition by requiring other drug companies to challenge the ‘398 patent beforeobtaining FDA approval, and by causing under Hatch-Waxman a 180-day genericexclusivity period for the first generic applicant who challenged the Orange Book-listed patent. Am. Compl. ¶¶ 39, 83-85, 133 (JA 12, 22, 34).
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obtained” patent3 on desmopressin tablets to prevent and delay lower-priced
generic equivalents of DDAVP from entering the market. Am. Compl. ¶ 3 (JA 2).
The enforcement, plaintiffs allege, consisted of improperly listing the patent in the
Food and Drug Administration’s (FDA) Orange Book and filing and prosecuting
patent infringement suits against generic drug makers that applied to market a
generic equivalent of DDAVP. Id. Under the Hatch-Waxman Act, once the patent
was listed in the Orange Book, the filing of infringement suits against the generic
drug makers seeking FDA approval to market the drug triggered an automatic 30-
month stay of that approval.4 Am. Compl. ¶¶ 21-35, 88, 98 (JA 6-11, 23, 26).
Defendants’ actions, the complaint alleges, “deprived Plaintiffs . . . of
access to substantially lower-priced generic versions of desmopressin acetate
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tablets, thereby causing Plaintiffs . . . to pay supra-competitive prices for DDAVP
and its generic equivalents.” Am. Compl. ¶ 4 (JA 2). The plaintiffs sustained
substantial losses and damage to their business and property in the form of these
overcharges, and they seek treble damages for these injuries. Am. Compl. ¶¶ 6,
134 (JA 3, 34).
2. The defendants jointly moved to dismiss the direct purchasers’ complaint
for failure to state a claim, arguing that the plaintiffs lacked antitrust standing
under section 4 of the Clayton Act. Aventis separately moved to dismiss for
failure to plead with particularity facts showing Aventis’ knowledge of, or
involvement in, the alleged fraud on the U.S. Patent and Trademark Office (PTO),
as required by Federal Rule of Civil Procedure 9(b).
3. The district court granted both motions. Memorandum and Order (Nov. 2,
2006) (Op.) (SA 1-16). It recognized that under Walker Process Equipment Inc. v.
Food Machinery & Chemical Corp., 382 U.S. 172 (1965), the enforcement of a
patent obtained by intentional fraud on the PTO may be the basis for a violation of
the Sherman Act and a damages action under the Clayton Act. Op. at 5-6 (SA 5-
6). The district court, however, concluded that the direct purchasers’ Walker
Process claim failed here for three reasons. First, based on its findings in the prior
infringement action, see supra note 3, the court held that the defendants’ conduct
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did not rise to the level of fraud required by Walker Process. Id. at 8 (SA 8).
Second, the plaintiffs did not plead fraud with the particularity required by Rule
9(b). Op. at 8, 13-15 (SA 8, 13-15).
The district court’s third reason was that the plaintiffs are not “‘proper’
antitrust plaintiffs” and therefore did not have antitrust standing to bring a so-
called Walker Process claim. Id. at 8 (SA 8). The court recognized that the
plaintiffs were direct purchasers and that they were harmed by the “monopoly,
which kept generic versions of DDAVP off of the market and resulted in
overcharges to Plaintiffs.” Id. at 9 (SA 9). Nonetheless, it concluded that they
lacked standing because they did not compete, and would not have competed, with
defendants, nor were they sued or threatened with an infringement suit by the
defendants. Id. at 9-12 (SA 9-12).
ARGUMENT
I. THE PLAINTIFFS HAVE ANTITRUST STANDING
A. Antitrust Standing Is Well Established for Direct Purchasers SeekingOvercharge Damages Caused by an Antitrust Violation
Section 4 of the Clayton Act provides that “any person who shall be injured
in his business or property by reason of anything forbidden in the antitrust laws
may sue therefor.” 15 U.S.C. § 15. The section’s dual purpose is “to deter”
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violators by “depriv[ing] them of the fruits of their illegality and to compensate
victims of antitrust violations for their injuries.” Pfizer Inc. v. Gov’t of India, 434
U.S. 308, 314 (1978) (Pfizer) (internal quotation marks and citations omitted). The
plaintiffs’ complaint on its face fits comfortably within the standing requirements
and purposes of section 4 as interpreted by the Supreme Court. The plaintiffs are
“persons” within the meaning of the Clayton Act. 15 U.S.C. § 12(a). They directly
purchased DDAVP from the defendants. And they sought to recover overcharges
resulting from a monopoly allegedly maintained by the defendants through conduct
violating the antitrust laws.
It is long-settled section 4 law that direct purchasers such as plaintiffs have
antitrust standing to recover overcharges. As the leading commentators have
explained: “Because protecting consumers from monopoly prices is the central
concern of antitrust, buyers have usually been preferred plaintiffs in private
antitrust litigation. As a result, consumer standing to recover for an overcharge
paid directly to an illegal cartel or monopoly is seldom doubted.” 2 Philip E.
Areeda & Herbert Hovenkamp, Antitrust Law ¶ 345, at 356 (2d ed. 2000); see 2
Philip E. Areeda & Donald F. Turner, Antitrust Law ¶ 345, at 183 (1978); Earl E.
Pollock, Standing to Sue, Remoteness of Injury, and the Passing-On Doctrine, 32
Antitrust L.J. 5, 7 (1966).
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The antitrust standing of direct purchasers seeking to recover overcharges
from those who raised price by restraining or monopolizing trade in violation of the
Sherman Act was established as early as Chattanooga Foundry & Pipe Works v.
Atlanta, 203 U.S. 390 (1906). The city of Atlanta, which had purchased water pipe
at supracompetitive prices from a member of the pipe cartel (see Addyston Pipe &
Steel Co. v. United States, 175 U.S. 211 (1899)), sued for treble damages under
section 7 of the Sherman Act, the direct and substantively identical (see Pfizer, 434
U.S. at 311) predecessor of the current section 4 of the Clayton Act. The Court
succinctly explained why the plaintiff had antitrust standing: It had purchased the
pipe directly from a cartel member; because of the cartel’s violations of sections 1
and 2 of the Sherman Act, the plaintiff paid a supracompetitive price; and the
payment of that inflated price injured the city in its property. Chattanooga
Foundry, 203 U.S. at 395-96.
Subsequent decisions reaffirmed the antitrust standing of direct purchasers.
In Georgia v. Evans, 316 U.S. 159, 162 (1942), the Court held that states that
purchased directly from the defendants had the same standing to sue as injured
persons under section 4 “which is available to other purchasers who suffer through
violation of the Act.” In Pfizer, 434 U.S. at 310, 319, the Court held that, like a
private person or a state, a foreign government that had directly purchased goods
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from a cartel had standing to sue under section 4. And in Reiter v. Sonotone Corp.,
442 U.S. 330, 339-42 (1979), the Court unanimously rejected an argument that a
direct purchaser of price-fixed hearing aids may sue under section 4 only if the
purchaser is engaged in a commercial venture, and held that a direct purchaser who
is an actual user has equally clear antitrust standing. Direct purchaser standing is
thus at the center of what the Court has called the “‘expansive remedial purpose’”
of section 4. Blue Shield of Virginia v. McCready, 457 U.S. 465, 472 (1982),
quoting Pfizer, 434 U.S. at 313.
Notwithstanding that “expansive remedial purpose,” the Supreme Court has
held that section 4 is not to be read literally and does not “encompass every harm
that can be attributed directly or indirectly to the consequences of an antitrust
violation.” Associated General Contractors of California, Inc. v. California State
Council of Carpenters, 459 U.S. 519, 529 (1983) (AGC). Most importantly, in
Brunswick Corp. v. Pueblo Bowl-O-Mat, 429 U.S. 477, 489 (1977), the Court held
that section 4 permits recovery only for antitrust injury, which the Court defined as
“injury of the type the antitrust laws were intended to prevent and that flows from
that which makes defendants’ acts unlawful,” adding that injury giving rise to
standing “should reflect the anticompetitive effect either of the violation or of
anticompetitive acts made possible by the violation.”
5 Moreover, injuries to indirect purchasers from the passing-on ofovercharges do not give rise to damages claims under section 4. See Illinois BrickCo. v. Illinois, 431 U.S. 720 (1977); Kansas v. Utilicorp United Inc., 497 U.S. 199(1990).
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In addition, the courts have long held that section 4 does not permit recovery
for “indirect, remote, and consequential” injuries.5 Loeb v. Eastman Kodak, Co.
183 F. 704, 709 (3d Cir. 1910) (denying standing to shareholders); see G.K.A.
Beverage Corp. v. Honickman, 55 F.3d 762, 766-77 (2d Cir. 1995) (denying
standing to distributors for a soft drink bottler that allegedly was the target of
exclusionary conduct); Southwest Suburban Bd. of Realtors, Inc. v. Beverly Area
Planning Ass’n, 830 F.2d 1374, 1378 (7th Cir. 1987) (“Merely derivative injuries
sustained by employees, officers, stockholders, and creditors of an injured company
do not constitute ‘antitrust injury’ sufficient to confer antitrust standing.”). Rather,
damage recovery is available under section 4 only when the injuries complained of
were proximately caused by the antitrust violations. AGC, 459 U.S. at 532-34,
540-43; McCready, 457 U.S. at 476-78.
This Court has reduced the analysis of AGC to a two-part test for standing:
1) whether there is antitrust injury; and 2) whether other factors, mainly directness
of injury and identifiability of that injury, prevent the plaintiff from being an
efficient enforcer of the antitrust laws. Balaklaw v. Lovell, 14 F.3d 793, 797 & n.9
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(2d Cir. 1994); see Paycom Billing Servs., Inc. v. Mastercard Int’l, Inc., 467 F.3d
283, 290-91 (2d Cir. 2006). Section 4 requires that the plaintiff be “an efficient
enforcer,” rather than “the most efficient enforcer,” and the possibility that the
generic drug makers may also have antitrust standing—though they have not
brought antitrust suits—does not detract from the current plaintiffs’ standing under
section 4 to recover for their antitrust injuries. See Molecular Diagnostics Labs. v.
Hoffmann-La Roche Inc., 402 F. Supp. 2d 276, 281 (D.D.C. 2005). The recovery
by direct purchasers would not duplicate the recovery by competitors because each
group suffers direct, but distinct injuries with non-overlapping measures of
damages. The direct purchasers’ damages are the overcharges they paid, measured
as the difference between the monopoly price and the but-for price, while
competitors’ damages are their lost profits, measured as the difference between that
but-for price and their costs.
None of the limitations on the application of section 4 poses an obstacle to
recovery in this case. Assuming, arguendo, the underlying merit of the plaintiffs’
claims, they plainly suffered antitrust injury when they paid prices elevated by the
monopoly illegally maintained by enforcing a fraudulently obtained patent. And
the injuries suffered by plaintiffs were proximately caused by the allegedly
unlawful conduct.
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B. Direct Purchasers Are Not Deprived of Standing Merely BecauseTheir Monopoly Maintenance Claim Rests On Walker Process
The century-old body of Supreme Court and court of appeals antitrust
standing law is not made inapplicable by the plaintiffs’ allegations that the
monopoly was maintained by enforcing a fraudulently obtained patent. Nor do
these allegations transform plaintiffs’ antitrust claim into a patent claim. If a seller
unlawfully maintains a monopoly whether by enforcing a fraudulently obtained
patent or engaging in some other form of exclusionary conduct and that seller
charges direct customers supracompetitive prices as a result, these customers suffer
core antitrust injuries. And thus they have antitrust standing to make an antitrust
claim and seek damages for the antitrust violation, regardless of what form the
exclusionary conduct took or whether it violated patent or some other law.
The district court largely ignored this body of antitrust standing law: the
court cited little of it and applied none. Op. at 10 (SA 10) (citing the two-part
Balaklaw test, supra p. 9, but not applying it). Rather, the district court tersely, but
mistakenly, rested its holding on two recent district court decisions in Walker
Process suits—one of which did not even rule on section 4 standing and the other
of which ignored settled antitrust standing law. Op. at 11-12 (SA 11-12) (citing In
re Ciprofloxacin Hydrochloride Antitrust Litigation, 363 F. Supp. 2d 514
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(E.D.N.Y. 2005) (Cipro), and In re Remeron Antitrust Litigation, 335 F. Supp. 2d
522 (D.N.J. 2004) (Remeron)). The district court also erroneously seemed to share
the defendants’ dissatisfaction with the balance between antitrust and patent law
struck in Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp.,
382 U.S. 172 (1965).
1. Whatever the merits of the Cipro decision, the claims addressed there rest
on different factual and legal theories. The Cipro plaintiffs’ federal antitrust
challenge was based on an allegedly anticompetitive agreement settling an
infringement suit between a patentee and its competitors and did not include an
allegation that the patent was obtained by intentional fraud on the PTO. The
district court in Cipro concluded that the plaintiffs failed to show any
anticompetitive effect beyond the scope of the patent. 363 F. Supp. 2d at 541. The
only Walker Process-type claims in Cipro were brought by indirect purchasers
under state law, and those claims were held preempted by federal patent law. 363
F. Supp. 2d at 542-43. While patent law may be relevant to whether fraud was
perpetrated on the PTO, antitrust standing under section 4 of the Clayton Act is a
question of federal antitrust law independent of patent law. See Unitherm Food
Systems, Inc. v. Swift Eckrich, Inc., 375 F.3d 1341, 1349 (Fed. Cir. 2004), rev’d on
other grounds, 546 U.S. 394 (2006); see also Walker Process, 382 U.S. at 176.
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The court in Remeron based its conclusion that direct purchasers lacked
antitrust standing on its misreading of two district court cases holding that an actual
or potential competitor did not have standing to bring a Walker Process claim
unless it was excluded from the market by the defendant’s unlawful conduct.
Remeron, 335 F. Supp. 2d at 529 (citing Carrot Components Corp. v. Thomas &
Betts Corp., 229 U.S.P.Q. 61, 64 (D.N.J. 1986); Indium Corp. of Am. v. Semi-
Alloys Inc., 566 F. Supp. 1344 (N.D.N.Y. 1983) (Indium I); and Indium Corp. of
Am. v. Semi-Alloys Inc., 591 F. Supp. 608, 614-15 (N.D.N.Y. 1984) (Indium II)).
These cases have nothing to do with direct purchaser antitrust standing. They stand
for the proposition that standing under section 4 requires a causal relationship
between the allegedly unlawful acts and the plaintiff’s injury. See Carrot
Components, 229 U.S.P.Q. at 64 (Walker Process claim cannot be based on
enforcement that caused no “detriment” to plaintiff); Indium I, 566 F. Supp. at
1352-53 (Walker Process claim requires a causal link between injury and
patentee’s enforcement conduct); Indium II, 591 F. Supp. at 614-15 (amended
complaint alleged sufficient causal link).
A causal relationship is, of course, required for Walker Process damages
claims, just like other section 4 claims; as we observed above, the antitrust
violation must be the proximate cause of the plaintiffs’ injuries, see supra p. 9.
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The causation requirement does not, however, dictate that only plaintiffs against
whom the fraudulently obtained patent was enforced have standing to make a
Walker Process claim. In Hydril Co. v. Grant Prideco LP, 474 F.3d 1344, 1350
(Fed. Cir. 2007), for example, the court of appeals held that “a valid Walker
Process claim may be based upon enforcement activity directed against the
plaintiff’s customers” if that enforcement causes the plaintiff the kind of harm that
the antitrust laws were intended to prevent. While competitors failing to allege that
enforcement caused them injury (as in Carrot Components and Indium I) cannot
state a Walker Process claim, competitors alleging that the enforcement against
their customers caused them antitrust injury (as in Hydril) can state a claim.
Similarly, purchasers alleging that enforcement against the defendants’ competitors
caused the purchasers’ injury in the form of overcharges have standing to recover
for those overcharges. Cf. McCready, 457 U.S. at 478-79 (finding antitrust
standing for purchaser of psychological services foreseeably injured by
exclusionary conduct directed at psychologists).
2. The defendants may argue that allowing antitrust suits by direct
purchasers would amount to private suits to cancel patents based on fraud, despite
the rule that only the United States can sue to cancel a patent for fraud on the patent
office, United States v. American Bell Telephone Co., 128 U.S. 315, 369-70 (1888).
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This argument has no logical connection to section 4 and boils down to a
disagreement with Walker Process. In that case, the Supreme Court made clear
that the lack of statutory authority for a private suit to cancel a patent on the basis
of fraud does not bar “those injured by monopolistic actions taken under the
fraudulent patent claim” from bringing an antitrust action seeking damages “under
the Clayton Act, not the patent laws.” 382 U.S. at 176. “While one of [the antitrust
action’s] elements is the fraudulent procurement of a patent, the action does not
directly seek the patent’s annulment.” Id. Denying standing because of the rule
that private parties cannot sue to cancel a patent commits the error the court of
appeals made, and the Supreme Court corrected, in Walker Process. See Food
Machinery & Chemical Corp. v. Walker Process Equipment, Inc., 335 F.2d 315,
316 (7th Cir. 1964); Walker Process, 382 U.S. at 175-76.
3. The defendants may also argue that allowing direct purchasers to sue in
cases like this will lead to litigation against patent holders that may retard the
research and development stimulated by the patent system. See Defendants’ Reply
Memorandum at 1-2 (JA 233-34); Cipro, 363 F. Supp. 2d at 541-42. Patents
obtained by fraud and used to maintain a monopoly, however, undermine both the
patent system and the “important public interest in permitting full and free
competition in the use of ideas which are in reality a part of the public domain.”
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Lear, Inc. v. Adkins, 395 U.S. 653, 670 (1969); see Edward Katzinger Co. v.
Chicago Metallic Mfg. Co., 329 U.S. 394, 400 (1947) (noting the “necessity of
protecting our competitive economy by keeping open the way for interested
persons to challenge the validity of patents which might be shown to be invalid”).
Moreover, the factual reliability of defendants’ prediction is open to serious
question. Walker Process “deal[s] only with a special class of patents, i.e., those
procured by intentional fraud,” not “honest mistake” amounting to a mere
“technical fraud.” 382 U.S. at 176-77; cf. Walker Process, 382 U.S. at 180 (“[T]his
private antitrust remedy should not be deemed available to reach § 2 monopolies
carried on under a nonfraudulently procured patent.”) (Harlan, J., concurring). The
need to plead with particularity and prove a knowing and intentional fraud on the
PTO may discourage many direct purchasers from bringing Walker Process claims
and defeat most of those who do. See Fed. R. Civ. P. 9(b); see, e.g., Dippin’ Dots,
Inc. v. Mosey, 476 F.3d 1337, 1346-48 (Fed. Cir. 2007). This may explain why
Walker Process-type claims by direct purchasers, while not unheard of before
Remeron—the direct purchasers in Pfizer, for example, alleged that defendants
engaged in “fraud upon the United States Patent Office” to monopolize the market
for broad spectrum antibiotics, 434 US. at 310—are rare.
Lastly, the defendants’ concern cannot “be used to frustrate the assertion of
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rights conferred by the antitrust laws.” Walker Process, 382 U.S. at 176. As
Justice Rehnquist pointed out in his concurrence in Sonotone, “the problem, if there
is one, is for Congress and not for the courts.” 442 U.S. at 346; id. at 344-45
(rejecting argument that under section 4 only commercial (as opposed to non-
commercial) direct purchasers should be allowed to sue because otherwise there
would be a costly increase in litigation).
CONCLUSION
The dismissal of the Walker Process claim should not be affirmed on the
basis that the plaintiffs lack antitrust standing as direct purchasers to bring such a
claim.
Respectfully submitted.
WILLIAM BLUMENTHAL THOMAS O. BARNETT General Counsel Assistant Attorney General Federal Trade Commission Washington, D.C. 20580 GERALD F. MASOUDI
Deputy Assistant Attorney General
ROBERT B. NICHOLSONJAMES J. FREDRICKS Attorneys U.S. Department of Justice 950 Pennsylvania Avenue NW Suite 3324 Washington, D.C. 20530
May 25, 2007 (202) 307-1403
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CERTIFICATION OF COMPLIANCEWITH TYPE VOLUME LIMITS,
TYPE FACE & STYLE REQUIREMENTS, AND ANTI-VIRUS SCAN REQUIREMENTS
1. I James J. Fredricks, certify that this brief complies with the type-volumelimitations of Federal Rules of Appellate Procedure 32(a)(7) and 29(d) because itcontains 3852 words, excluding the parts of the brief exempted by Federal Rule ofAppellate Procedure 32(a)(7)(B)(iii), as counted by the WordPerfect 10 wordprocessor program used to prepare it.
2. I, James J. Fredricks, further certify that this brief complies with the typefacerequirements of Federal Rule of Appellate Procedure 32(a)(5) and the type stylerequirements of Federal Rule of Appellate Procedure 32(a)(6) because it has beenprepared in a proportionally spaced typeface using the WordPerfect 10 wordprocessor program in 14-point Times New Roman.
3. I, James J. Fredricks, further certify that the electronic copy of this briefsubmitted in Portable Document Format (PDF) as an email attachment [email protected] pursuant to Local Rule 32(a)(1)(A) complies with LocalRule 32(a)(1)(E) because it has been scanned for viruses by the anti-virus detectorNorton AntiVirus Corporate Edition version 7.60.926 (Virus Definition Fileversion 5/22/2007 rev. 19) and no virus has been detected.
___________________________James J. Fredricks
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CERTIFICATE OF SERVICE
I, James J. Fredricks, certify that I caused two copies of the accompanying BRIEFFOR THE UNITED STATES AND THE FEDERAL TRADE COMMISSION ASAMICI CURIAE SUPPORTING PLAINTIFFS-APPELLANTS to be sent viaovernight Fedex service and an electronic copy of this brief in pdf format to be sentvia email on the 25th of May, 2007, to each of the following:
Bruce E. GersteinGarwin, Bronzaft, Gerstein & Fisher1501 BroadwayNew York, NY [email protected](212) 398-0055Counsel for Plaintiff Louisianna Wholesale Drug Co., Inc.
Daniel BergerDavid F. SorensenBerger & Montague PC1622 Locust StPhiladelphia, PA [email protected](215) 875-5705Counsel for Plaintiff Rochester Drug Co-Operative, Inc.
Linda P. Nussbaum Kaplan Fox & Kilsheimer LLP805 Third AveNew York, NY [email protected](212) 687-1980Counsel for Plaintiffs Meijer, Inc. et al.
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Donald B. AyerJones Day51 Louisiana Ave NWWashington, DC [email protected](202) 879-4689Counsel for Defendant Aventis Pharmaceuticals, Inc.
Barbara H. WoottonArnold & Porter, LLP555 Twelfth Street NWWashington, DC [email protected](202) 942-6545Counsel for Defendants Ferring B.V. & Ferring Pharmaceuticals, Inc.
___________________________James J. Fredricks
